The UK’s FTSE 100 opened higher by 1.18% and is on course to finish up nearly 5%. This major market increase comes despite the continued economic tension caused by trade tariffs. These are the tariffs the United States imposed on China during Donald Trump’s presidency, which President Joe Biden has kept and even expanded.
During his first term, Trump’s decision to impose large tariffs on Chinese imports is another move that will have long-lasting implications. The US now imports nearly $440 billion of goods each year from China. By contrast, China imports only $145 billion of goods from the US. Significantly, in 2016 US imports from China made up 21% of all US imports. This figure as of today has dropped down to 13% last year, showing the changing tides in trade.
Notwithstanding the tariffs Trump first put in place, let’s fast forward through how that story has changed and morphed. The 10% blanket tariff that Trump imposed on nearly every country still hovers ominously overhead. Here in the US, we’ve already seen this with the punitive 25% tariff on imported cars, steel and aluminum. UK goods are affected by this tax. According to recent studies, this tariff acted as a tax. Enforcement didn’t come until only a few weeks ago.
China had vowed to retaliate in kind and has done so with a vigorous response to the US tariffs to date. In doing so, they have set taxes as high as 84%. This latest retaliatory move is a sign of China’s fierce resolve to defend its economic interests. China’s Foreign Ministry Spokesperson Lin Jian emphasized that China’s response will persist until their concerns are adequately addressed.
“China’s response to US tariffs will continue to the end. We will not let the interests of Chinese people be deprived or the trading system be undermined,” – Lin Jian
Today we are experiencing a trade deficit of alarming proportions. It still has a healing wound from tariffs and their broader effects. The resulting US trade deficit with China has generated enormous public anxiety. These details have led people to wonder if the tariffs are indeed working or even intended to address this imbalance.
The mood of the world market today has similarly responded with bright trading on most other stock exchanges. The German DAX – one of Europe’s main stock indexes – has already jumped more than 7%, an indication of investor euphoria. Markets in India were closed today for a public holiday, so were not able to join in this global positive turn.
For his part, former President Donald Trump had high hopes for the still-raging trade wars. He’s optimistic that a solution and constructive future is just around the bend. He has described Chinese President Xi Jinping as “one of the smartest people in the world” and indicated that negotiations could lead to beneficial outcomes for both nations.
“Xi is a smart guy and we’ll end up making a very good deal,” – Donald Trump
Trump’s comments are made in the context of ongoing speculation about future trade talks. So a discussion, he felt, will be coming sooner than later. This broader conversation has the potential to make real, fundamental changes to our existing, harmful trade paradigm.
“We will get a phone call at some point and then it’s off to the races,” – Donald Trump
The current standoff highlights the challenges of navigating and maintaining international trade partnerships. These polices are enormously consequential global market moving policies. As investors digest this information and market movements continue to fluctuate, many remain watchful of how these geopolitical dynamics will unfold in the coming weeks.